In a move that is likely to spark concern amongst investor landlords but provide relief to many tenants particularly in the retail and hospitality sectors, the Government announced today that it will be taking further measures to restrict landlord’s rights of enforcement for non-payment of rent. While framing the moves as necessary to “protect the UK high street from aggressive rent collection and closure”, the detail of the Government's plans is awaited and there will be concerns that such moves could be open to abuse.
As we previously reported, Section 82 of the Coronavirus Act 2020 introduced a wide ranging moratorium on a landlord’s ability to forfeit for non-payment of rent and recent indications from the Department of Housing, Communities and Local Government had been that they were “monitoring the enforcement of non-payment closely” and keeping the issue “under review”.
Clearly the result of that review has been the Government has now felt compelled to act further. In summary the Government is looking to:
- Temporarily ban the use of statutory demands and winding up orders where a company cannot pay their bills due to Covid-19
- Provide tenants with more breathing space to pay rent by preventing landlords using Commercial Rent Arrears Recovery (CRAR) unless they are owed 90 days of unpaid rent.
The temporary ban on the use of statutory demand and winding up orders will be included in the Corporate Insolvency and Governance Bill, which the Business Secretary Alok Sharma set out earlier this month. Under these measures, any winding-up petition that claims that the company is unable to pay its debts must first be reviewed by the court to determine why. The law will not permit petitions to be presented, or winding-up orders made, where the company’s inability to pay is the result of Covid-19. The new legislation to protect tenants will be in force until 30 June, and can be extended in line with the moratorium on commercial lease forfeiture. Further detail is awaited, but already it is being highlighted how difficult it will be for a landlord to prove that a default was not Covid-19 related. The second restriction on the use of CRAR will be introduced by secondary legislation.
However, an interesting omission from the measures announced yesterday by the Government was that there was no mention of any restrictions yet on applications to court for the appointment of administrators (which any creditor can do). The consequence of that omission is that unless there are further changes the Government is yet to announce, there is still a gap in the apparent protection for tenants.
In a sign of the increasingly tricky balance the Government is having to broker, the Government is both asking landlords and investors to work collaboratively with high street businesses unable to pay their bills during the Covid-19 pandemic while calling on tenants to pay rent where they can afford it or what they can in recognition of the strains felt by commercial landlords too and are highlighting the recent expansion of the Coronavirus Business Interruption Loans Scheme.